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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 95-4719745 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
520 Madison Avenue, 12th Floor, New York, New York | 10022 | |
(Address of principal executive offices) | (Zip Code) |
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 2007
Page | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
8 | ||||||||
39 | ||||||||
50 | ||||||||
54 | ||||||||
54 | ||||||||
54 | ||||||||
55 | ||||||||
56 | ||||||||
EXHIBIT 10.2 | ||||||||
EXHIBIT 10.3 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32 |
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(Dollars in thousands, except per share amounts)
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 216,577 | $ | 513,041 | ||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 692,941 | 508,303 | ||||||
Investments | 135,087 | 125,533 | ||||||
Investments in managed funds | 431,365 | 372,869 | ||||||
Securities borrowed | 14,953,164 | 9,711,894 | ||||||
Securities purchased under agreements to resell | 257,212 | 226,176 | ||||||
Receivable from brokers, dealers and clearing organizations | 725,631 | 254,580 | ||||||
Receivable from customers | 528,082 | 663,552 | ||||||
Financial instruments owned, including securities pledged to creditors of $2,770,321 and $1,481,098 in 2007 and 2006, respectively | 6,839,631 | 4,606,223 | ||||||
Premises and equipment | 100,349 | 91,375 | ||||||
Goodwill | 261,401 | 257,321 | ||||||
Other assets | 554,047 | 494,590 | ||||||
Total Assets | $ | 25,695,487 | $ | 17,825,457 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Bank loans and current portion of long-term debt | $ | 331,915 | $ | 99,981 | ||||
Securities loaned | 10,076,504 | 6,794,554 | �� | |||||
Securities sold under agreements to repurchase | 4,688,989 | 2,092,838 | ||||||
Payable to brokers, dealers and clearing organizations | 984,981 | 669,196 | ||||||
Payable to customers | 1,217,691 | 1,010,486 | ||||||
Financial instruments sold, not yet purchased | 4,940,261 | 3,600,869 | ||||||
Accrued expenses and other liabilities | 444,283 | 650,974 | ||||||
22,684,624 | 14,918,898 | |||||||
Long-term debt | 1,169,278 | 1,168,562 | ||||||
Mandatorily redeemable convertible preferred stock | 125,000 | 125,000 | ||||||
Minority interest | 27,426 | 31,910 | ||||||
Total Liabilities | 24,006,328 | 16,244,370 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.0001 par value. Authorized 500,000,000 shares; issued 150,912,711 shares in 2007 and 145,628,024 shares in 2006 | 15 | 14 | ||||||
Additional paid-in capital | 951,880 | 876,393 | ||||||
Retained earnings | 997,906 | 952,263 | ||||||
Less: | ||||||||
Treasury stock, at cost, 26,674,469 shares in 2007 and 26,081,110 shares in 2006 | (271,162 | ) | (254,437 | ) | ||||
Accumulated other comprehensive gain (loss): | ||||||||
Currency translation adjustments | 13,430 | 9,764 | ||||||
Additional minimum pension liability | (2,910 | ) | (2,910 | ) | ||||
Total accumulated other comprehensive gain (loss) | 10,520 | 6,854 | ||||||
Total stockholders’ equity | 1,689,159 | 1,581,087 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 25,695,487 | $ | 17,825,457 | ||||
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Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2007 | 2006 | |||||||
Revenues: | ||||||||
Commissions | $ | 77,032 | $ | 69,002 | ||||
Principal transactions | 144,449 | 159,980 | ||||||
Investment banking | 170,115 | 127,734 | ||||||
Asset management fees and investment income from managed funds | 22,485 | 40,822 | ||||||
Interest | 201,162 | 113,760 | ||||||
Other | 8,041 | 12,779 | ||||||
Total revenues | 623,284 | 524,077 | ||||||
Interest expense | 204,475 | 108,663 | ||||||
Revenues, net of interest expense | 418,809 | 415,414 | ||||||
Non-interest expenses: | ||||||||
Compensation and benefits | 227,666 | 232,734 | ||||||
Floor brokerage and clearing fees | 14,582 | 13,933 | ||||||
Technology and communications | 22,157 | 19,245 | ||||||
Occupancy and equipment rental | 18,171 | 15,172 | ||||||
Business development | 13,109 | 12,603 | ||||||
Other | 19,631 | 24,320 | ||||||
Total non-interest expenses | 315,316 | 318,007 | ||||||
Earnings before income taxes, minority interest and cumulative effect of change in accounting principle | 103,493 | 97,407 | ||||||
Income taxes | 40,658 | 38,432 | ||||||
Earnings before minority interest and cumulative effect of change in accounting principle | 62,835 | 58,975 | ||||||
Minority interest in earnings of consolidated subsidiaries, net | 576 | 2,134 | ||||||
Earnings before cumulative effect of change in accounting principle, net | 62,259 | 56,841 | ||||||
Cumulative effect of change in accounting principle, net | ¾ | 1,606 | ||||||
Net earnings | $ | 62,259 | $ | 58,447 | ||||
Earnings per basic share: | ||||||||
Basic- | ||||||||
Earnings before cumulative effect of change in accounting principle, net | $ | 0.44 | $ | 0.44 | ||||
Cumulative effect of change in accounting principle, net | — | 0.01 | ||||||
Net earnings | $ | 0.44 | $ | 0.45 | ||||
Diluted- | ||||||||
Earnings before cumulative effect of change in accounting principle, net | $ | 0.42 | $ | 0.40 | ||||
Cumulative effect of change in accounting principle, net | — | 0.01 | ||||||
Net earnings | $ | 0.42 | $ | 0.41 | ||||
Weighted average shares: | ||||||||
Basic | 140,897 | 130,358 | ||||||
Diluted | 152,058 | 142,942 | ||||||
Fixed charge coverage ratio | 5.0X | 5.3X |
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(Dollars in thousands, except per share amounts)
2007 | 2006 | |||||||
Common stock, par value $.0001 per share | ||||||||
Balance, beginning of year | $ | 14 | $ | 7 | ||||
Issued stock | 1 | 7 | ||||||
Balance, end of period | $ | 15 | $ | 14 | ||||
Additional paid in capital | ||||||||
Balance, beginning of year | $ | 876,393 | $ | 709,447 | ||||
Benefit plan share activity (1) | 13,713 | 33,360 | ||||||
Amortization expense | 29,158 | 83,137 | ||||||
Proceeds from exercise of stock options | 1,720 | 17,543 | ||||||
Tax benefits | 30,896 | 32,906 | ||||||
Balance, end of period | $ | 951,880 | $ | 876,393 | ||||
Retained earnings | ||||||||
Balance, beginning of year, as previously reported | $ | 952,263 | $ | 803,262 | ||||
Cumulative effect of adjustment from adoption of FIN 48 | (410 | ) | — | |||||
Net earnings | 62,259 | 205,750 | ||||||
Dividends | (16,206 | ) | (56,749 | ) | ||||
Balance, end of period | $ | 997,906 | $ | 952,263 | ||||
Treasury stock, at cost | ||||||||
Balance, beginning of year | $ | (254,437 | ) | $ | (220,703 | ) | ||
Purchases | (16,657 | ) | (23,972 | ) | ||||
Returns / forfeitures | (68 | ) | (9,762 | ) | ||||
Balance, end of period | $ | (271,162 | ) | $ | (254,437 | ) | ||
Accumulated other comprehensive income (loss) | ||||||||
Balance, beginning of year | $ | 6,854 | $ | (5,163 | ) | |||
Currency adjustment | 3,666 | 8,802 | ||||||
Pension adjustment | — | 3,215 | ||||||
Balance, end of period | $ | 10,520 | $ | 6,854 | ||||
Total stockholders’ equity | $ | 1,689,159 | $ | 1,581,087 | ||||
Comprehensive income | ||||||||
Net earnings | $ | 62,259 | $ | 205,750 | ||||
Other comprehensive income | 3,666 | 12,017 | ||||||
Total comprehensive income | $ | 65,925 | $ | 217,767 | ||||
1) | Includes grants related to the Incentive Plan, Deferred Compensation Plan, and Director Plan. |
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Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 62,259 | $ | 58,447 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Cumulative effect of accounting change, net | — | 1,606 | ||||||
Depreciation and amortization | 5,693 | 5,273 | ||||||
Accruals related to various benefit plans, stock issuances, net of forfeitures | 42,804 | 22,851 | ||||||
(Increase) decrease in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (184,458 | ) | 150,052 | |||||
(Increase) decrease in receivables: | ||||||||
Securities borrowed | (5,241,270 | ) | (1,537,046 | ) | ||||
Brokers, dealers and clearing organizations | (468,817 | ) | (174,859 | ) | ||||
Customers | 136,652 | (113,171 | ) | |||||
Increase in financial instruments owned | (2,233,765 | ) | (926,661 | ) | ||||
Increase in securities purchased under agreements to resell | (31,036 | ) | — | |||||
Increase in other assets | (58,156 | ) | (146,519 | ) | ||||
Increase in operating payables: | ||||||||
Securities loaned | 3,281,950 | 1,142,060 | ||||||
Securities sold under agreements to repurchase | 2,596,151 | — | ||||||
Brokers, dealers and clearing organizations | 313,719 | 325,696 | ||||||
Customers | 207,233 | 77,881 | ||||||
Increase in financial instruments sold, not yet purchased | 1,339,392 | 952,670 | ||||||
Decrease in accrued expenses and other liabilities | (196,884 | ) | (16,276 | ) | ||||
Decrease increase in minority interest | (4,484 | ) | (3,874 | ) | ||||
Net cash used in operating activities | (433,017 | ) | (181,870 | ) | ||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)
Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2007 | 2006 | |||||||
Cash flows from investing activities: | ||||||||
Decrease in short term bond funds | — | 7,037 | ||||||
Increase in investments | (9,545 | ) | (5,626 | ) | ||||
Increase in investments in managed funds | (58,496 | ) | (3,383 | ) | ||||
Business acquisitions, net of cash received | (14,567 | ) | (19,944 | ) | ||||
Purchase of premises and equipment | (14,236 | ) | (6,426 | ) | ||||
Net cash used in investing activities | (96,844 | ) | (28,342 | ) | ||||
Cash flows from financing activities | ||||||||
Tax benefit from the issuance of stock based awards | 30,896 | 14,053 | ||||||
Net proceeds from (payments on): | ||||||||
Bank loans | 231,927 | 1,927 | ||||||
Issuance of senior notes | — | 492,155 | ||||||
Issuance of mandatorily redeemable convertible preferred stock | — | 125,000 | ||||||
Repurchase of treasury stock | (16,657 | ) | (3,418 | ) | ||||
Dividends | (16,206 | ) | (9,547 | ) | ||||
Exercise of stock options, not including tax benefits | 1,720 | 2,873 | ||||||
Net cash provided by financing activities | 231,680 | 623,043 | ||||||
Effect of foreign currency translation on cash and cash equivalents | 1,717 | 169 | ||||||
Net (decrease) increase in cash and cash equivalents | (296,464 | ) | 413,000 | |||||
Cash and cash equivalents – beginning of period | 513,041 | 255,933 | ||||||
Cash and cash equivalents – end of period | $ | 216,577 | $ | 668,933 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 212,192 | $ | 116,633 | ||||
Income taxes | $ | 7,104 | $ | 42,785 |
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Page | ||||||
Note 1. | Organization and Summary of Significant Accounting Policies | 9 | ||||
Note 2. | Asset Management Fees and Investment Income From Managed Funds | 17 | ||||
Note 3. | Cash, Cash Equivalents, and Short-Term Investments | 19 | ||||
Note 4. | Financial Instruments | 19 | ||||
Note 5. | Short-Term Borrowings | 21 | ||||
Note 6. | Long-Term Debt | 21 | ||||
Note 7. | Mandatorily Redeemable Convertible Preferred Stock | 22 | ||||
Note 8. | Income Taxes | 22 | ||||
Note 9. | Benefit Plans | 23 | ||||
Note 10. | Minority Interest | 23 | ||||
Note 11. | Earnings Per Share | 24 | ||||
Note 12. | Derivative Financial Instruments | 25 | ||||
Note 13. | Other Comprehensive Gain (Loss) | 28 | ||||
Note 14. | Net Capital Requirements | 28 | ||||
Note 15. | Commitments, Contingencies and Guarantees | 29 | ||||
Note 16. | Segment Reporting | 30 | ||||
Note 17. | Goodwill | 32 | ||||
Note 18. | Quarterly Dividends | 32 | ||||
Note 19. | Variable Interest Entities (“VIEs”) | 32 | ||||
Note 20. | Related Party Disclosures | 33 | ||||
Note 21. | Stock Based Compensation | 34 | ||||
Note 22. | Subsequent Events | 38 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
Assets under management: | ||||||||
Fixed Income (1) | $ | 1,838 | $ | 981 | ||||
Equities (2) | 388 | 469 | ||||||
Convertibles (3) | 2,715 | 1,681 | ||||||
Real Assets (4) | — | 136 | ||||||
4,941 | 3,267 | |||||||
Assets under management by third parties (5): | ||||||||
Equities, Convertibles and Fixed Income | 291 | 261 | ||||||
Private Equity | 600 | 720 | ||||||
891 | 981 | |||||||
Total | $ | 5,832 | $ | 4,248 | ||||
(1) | Our managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, Jefferies Buckeye Fund, the Summit Lake CLO, the Victoria Falls CLO, the Clear Lake CLO, the Diamond Lake CLO and start-up funds in which we are the sole or primary investor, but does not include third-party managed funds. | |
(2) | The Jefferies RTS Fund, Jefferies Paragon Fund and start-up funds in which we are the sole or primary investor. | |
(3) | Convertible bond assets managed by us and Global Convertible Fund Ltd (formerly known as Asymmetric Convertible Fund). | |
(4) | The Jefferies Real Asset Fund. The Jefferies Real Asset Fund was liquidated during the second quarter of 2006. | |
(5) | Third party managed funds in which we have a 50% or less interest in the entities that manage these assets or otherwise receive a portion of the management fees. |
Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2007 | 2006 | |||||||
Asset management fees: | ||||||||
Fixed Income (1) | $ | 4,440 | $ | 5,042 | ||||
Equities (2) | 2,180 | 17,130 | ||||||
Convertibles (3) | 2,831 | 1,643 | ||||||
Real Assets (4) | — | 2,194 | ||||||
9,451 | 26,009 | |||||||
Investment income from managed funds | 13,034 | 14,813 | ||||||
Total | $ | 22,485 | $ | 40,822 | ||||
(1) | Our managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, Jefferies Buckeye Fund, the Summit Lake CLO, the Victoria Falls CLO, the Clear Lake CLO, the Diamond Lake CLO and start-up funds in which we are the sole or primary investor, but does not include third-party managed funds. | |
(2) | The Jefferies RTS Fund, Jefferies Paragon Fund and start-up funds in which we are the sole or primary investor. | |
(3) | Convertible bond assets managed by us and Global Convertible Fund Ltd (formerly known as Asymmetric Convertible Fund). | |
(4) | The Jefferies Real Asset Fund. The Jefferies Real Asset Fund was liquidated during the second quarter of 2006. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Investment | Net | |||||||||||||||
Investment | Income from | Investment | ||||||||||||||
Income from | Managed Funds – | Income from | ||||||||||||||
Average | Managed | Minority Interest | Managed | |||||||||||||
Investment (5) | Funds | Portion | Funds | |||||||||||||
Fixed Income (1) | $ | 274.7 | $ | 7.4 | $ | 0.4 | $ | 7.0 | ||||||||
Equities (2) | 161.7 | 5.1 | 0.1 | 5.0 | ||||||||||||
Convertibles (3) | 33.5 | 0.5 | — | 0.5 | ||||||||||||
Real Assets (4) | — | — | — | — | ||||||||||||
Total | $ | 469.9 | $ | 13.0 | $ | 0.5 | $ | 12.5 | ||||||||
Investment | Net | |||||||||||||||
Investment | Income from | Investment | ||||||||||||||
Income from | Managed Funds – | Income from | ||||||||||||||
Average | Managed | Minority Interest | Managed | |||||||||||||
Investment (5) | Funds | Portion | Funds | |||||||||||||
Fixed Income (1) | $ | 154.8 | $ | 7.4 | $ | 1.7 | $ | 5.7 | ||||||||
Equities (2) | 75.1 | 5.9 | ¾ | 5.9 | ||||||||||||
Convertibles (3) | 12.3 | 0.8 | ¾ | 0.8 | ||||||||||||
Real Assets (4) | 11.1 | 0.7 | ¾ | 0.7 | ||||||||||||
Total | $ | 253.3 | $ | 14.8 | $ | 1.7 | $ | 13.1 | ||||||||
(1) | Our managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, Jefferies Buckeye Fund, the Summit Lake CLO, the Victoria Falls CLO, the Clear Lake CLO, the Diamond Lake CLO and start-up funds in which we are the sole or primary investor, but does not include third-party managed funds. | |
(2) | The Jefferies RTS Fund, Jefferies Paragon Fund and start-up funds in which we are the sole or primary investor. | |
(3) | Convertible bond assets managed by us and Global Convertible Fund Ltd (formerly known as Asymmetric Convertible Fund). | |
(4) | The Jefferies Real Asset Fund. The Jefferies Real Asset Fund was liquidated during the second quarter of 2006. | |
(5) | We have excluded the portion of average investment in managed funds that represent an economic hedge against certain employee deferred compensation obligations. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, 2007 | December 31, 2006 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 156,934 | $ | 107,488 | ||||
Money market investments | 59,643 | 405,553 | ||||||
Total cash and cash equivalents | 216,577 | 513,041 | ||||||
Cash and securities segregated (1) | 692,941 | 508,303 | ||||||
Mortgage-backed securities (2) | 4,512 | 43,151 | ||||||
Asset-backed securities (2) | 4,095 | 28,009 | ||||||
$ | 918,125 | $ | 1,092,504 | |||||
(1) | In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies, as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. | |
(2) | Items are included in financial instruments owned or securities pledged to creditors (see note 4 of the Notes to Consolidated Financial Statements). Items are financial instruments utilized in our overall cash management activities and are readily convertible to cash, marginable or accessible for liquidity purposes. |
March 31, 2007 | December 31, 2006 | |||||||||||||||
Financial | Financial | |||||||||||||||
Instruments | Instruments | |||||||||||||||
Financial | Sold, | Financial | Sold, | |||||||||||||
Instruments | Not Yet | Instruments | Not Yet | |||||||||||||
Owned | Purchased | Owned | Purchased | |||||||||||||
Corporate equity securities | $ | 3,461,161 | $ | 2,958,762 | $ | 1,737,174 | $ | 1,835,046 | ||||||||
High-yield securities | 176,491 | 60,798 | 166,616 | 62,115 | ||||||||||||
Corporate debt securities | 1,948,836 | 1,090,610 | 1,752,213 | 1,123,285 | ||||||||||||
U.S. Government and agency obligations | 773,392 | 492,567 | 634,263 | 339,891 | ||||||||||||
Mortgage-backed securities | 4,512 | — | 43,151 | — | ||||||||||||
Asset-backed securities | 4,095 | — | 28,009 | — | ||||||||||||
Derivatives | 463,974 | 337,220 | 234,646 | 240,231 | ||||||||||||
Other | 7,170 | 304 | 10,151 | 301 | ||||||||||||
$ | 6,839,631 | $ | 4,940,261 | $ | 4,606,223 | $ | 3,600,869 | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, 2007 | December 31, 2006 | |||||||
Corporate equity securities | $ | 2,441,605 | $ | 1,068,498 | ||||
Corporate debt securities | 313,452 | 404,167 | ||||||
High-yield securities | 15,264 | 8,433 | ||||||
$ | 2,770,321 | $ | 1,481,098 | |||||
Level 1: | Inputs that reflect unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets; | |||
Level 2: | Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable for the asset or liability at the measurement date; | |||
Level 3: | Inputs that are unobservable at the measurement date. |
Counterparty | ||||||||||||||||||||
and Cash | ||||||||||||||||||||
Collateral | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting | Total | ||||||||||||||||
Assets: | ||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||
Non-derivative instruments | $ | 1,980,759 | $ | 4,234,521 | $ | 160,377 | $ | — | $ | 6,375,657 | ||||||||||
Derivative instruments | 549,890 | 160,444 | — | (246,360 | ) | 463,974 | ||||||||||||||
Total financial instruments owned | 2,530,649 | 4,394,965 | 160,377 | (246,360 | ) | 6,839,631 | ||||||||||||||
Investments (1) | — | — | 97,653 | — | 97,653 | |||||||||||||||
Other assets (2) | — | 8,155 | — | — | 8,155 | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||
Non-derivative instruments | 3,092,863 | 1,510,178 | — | — | 4,603,041 | |||||||||||||||
Derivative instruments | 375,605 | 408,148 | — | (446,533 | ) | 337,220 | ||||||||||||||
Total financial instruments sold, not yet purchased | 3,468,468 | 1,918,326 | — | (446,533 | ) | 4,940,261 |
(1) | At March 31, 2007 there were approximately $37.4 million of strategic investments in financial service entities accounted for under the equity method of accounting that were excluded from this table. | |
(2) | Represents our interest rate swap entered into as a fair value hedge on $200 million aggregate principal amount of unsecured 7 3/4% senior notes. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Non-derivative | ||||||||
instruments – | ||||||||
Assets | Investments | |||||||
Balance, December 31, 2006 | $ | 205,278 | $ | 97,289 | ||||
Total gains/ (losses) (realized and unrealized) (1) | (3,043 | ) | 5,354 | |||||
Purchases, sales, settlements, and Issuances | (27,422 | ) | (4,990 | ) | ||||
Net transfers in and/or out of Level 3 | (14,436 | ) | — | |||||
Balance, March 31, 2007 | $ | 160,377 | $ | 97,653 | ||||
Change in unrealized gains/ (losses) relating to instruments still held at March 31, 2007 (1) | $ | (3,620 | ) | $ | 5,354 |
(1) | Realized and unrealized gains/ losses are reported in principal transactions in the Consolidated Statements of Earnings. |
March 31, 2007 | December 31, 2006 | |||||||
73/4% Senior Notes, due 2012, net of unamortized discount of $4,504 (2007) | 328,651 | 328,003 | ||||||
51/2% Senior Notes, due 2016, net of unamortized discount of $1,635 (2007) | 348,365 | 348,320 | ||||||
61/4% Senior Notes, due 2036, net of unamortized discount of $7,738 (2007) | 492,262 | 492,239 | ||||||
$ | 1,169,278 | $ | 1,168,562 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2007 | 2006 | |||||||
Net pension cost included the following components: | ||||||||
Service cost — benefits earned during the period | $ | 69 | $ | — | ||||
Interest cost on projected benefit obligation | 590 | 638 | ||||||
Expected return on plan assets | (628 | ) | (560 | ) | ||||
Amortization of prior service cost | — | — | ||||||
Amortization of net loss | 141 | 255 | ||||||
Net periodic pension cost | $ | 172 | $ | 333 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
Earnings before cumulative effect of change in accounting principle, net | $ | 62,259 | $ | 56,841 | ||||
Cumulative effect of change in accounting principle, net | — | 1,606 | ||||||
Net earnings | $ | 62,259 | $ | 58,447 | ||||
Add: Convertible preferred stock dividends | 1,016 | 463 | ||||||
Net earnings for diluted earnings per share | $ | 63,275 | $ | 58,910 | ||||
Shares: | ||||||||
Average shares used in basic computation | 140,897 | 130,358 | ||||||
Unvested restricted stock / restricted stock units | 6,457 | 9,110 | ||||||
Stock options | 647 | 1,547 | ||||||
Convertible preferred stock | 4,057 | 1,927 | ||||||
Average shares used in diluted computation | 152,058 | 142,942 | ||||||
Earnings per share: | ||||||||
Basic- | ||||||||
Earnings before cumulative effect of change in accounting principle, net | $ | 0.44 | $ | 0.44 | ||||
Cumulative effect of change in accounting principle, net | — | 0.01 | ||||||
Net earnings | $ | 0.44 | $ | 0.45 | ||||
Diluted- | ||||||||
Earnings before cumulative effect of change in accounting principle, net | $ | 0.42 | $ | 0.40 | ||||
Cumulative effect of change in accounting principle, net | — | 0.01 | ||||||
Net earnings | $ | 0.42 | $ | 0.41 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
0 – 12 | 1 – 5 | 5 – 10 | ||||||||||||||
(in millions) | Months | Years | Years | Total | ||||||||||||
Swaps | $ | (136.8 | ) | $ | 0.1 | $ | — | $ | (136.7 | ) | ||||||
Options | (24.5 | ) | (68.1 | ) | — | (92.6 | ) | |||||||||
FX forwards | 1.3 | — | — | 1.3 | ||||||||||||
Exchange-traded futures | 222.0 | 2.4 | — | 224.4 | ||||||||||||
Total | $ | 62.0 | $ | (65.6 | ) | $ | — | $ | (3.6 | ) | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Fair Value | ||||||||
(in millions) | March 31, 2007 | December 31, 2006 | ||||||
Counterparty credit quality: | ||||||||
A or higher | $ | (238.1 | ) | $ | 37.5 | |||
Exchange-traded futures and options (1) | 234.5 | 13.4 | ||||||
Total | $ | (3.6 | ) | $ | 50.9 | |||
(1) | Exchange-traded commodities and foreign exchange futures and options are not deemed to have significant credit exposures as the exchanges guarantee that every contract will be properly settled on a daily basis. |
Fair Value | ||||||||
(in millions) | March 31, 2007 | December 31, 2006 | ||||||
Foundations, trusts and endowments | $ | 64.0 | $ | (6.4 | ) | |||
Financial services | (278.8 | ) | 4.7 | |||||
Collective investment vehicles (including pension plans, mutual funds and other institutional counterparties) | (23.3 | ) | 39.2 | |||||
Exchanges (1) | 234.5 | 13.4 | ||||||
Total | $ | (3.6 | ) | $ | 50.9 | |||
(1) | Exchange-traded commodities and foreign exchange futures and options are not deemed to have significant credit exposures as the exchanges guarantee that every contract will be properly settled on a daily basis. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, 2007 | December 31, 2006 | |||||||||||||||
(in thousands) | Assets | Liabilities | Assets | Liabilities | ||||||||||||
Derivative instruments included in financial instruments owned and financial instruments sold, not yet purchased: | ||||||||||||||||
Exchange traded futures | $ | 225,797 | $ | 9,414 | $ | 19,724 | $ | 2,116 | ||||||||
Commodity related swaps (1) | 59,820 | ¾ | 61,741 | ¾ | ||||||||||||
Option contracts | 177,039 | 327,806 | 152,361 | 238,115 | ||||||||||||
Foreign exchange forward contracts | 1,318 | ¾ | 820 | ¾ | ||||||||||||
Total | $ | 463,974 | $ | 337,220 | $ | 234,646 | $ | 240,231 | ||||||||
Derivative instruments included in other assets: | ||||||||||||||||
Interest rate swaps | $ | 8,155 | ¾ | 7,690 | ¾ |
(1) | Commodity related swaps are recorded net of collateral pledged and collateral received of $203.8 million and $3.6 million, respectively, as of March 31, 2007. Commodity related swaps are recorded net of collateral pledged and collateral received of $20.3 million and $112.1 million, respectively, as of December 31, 2006. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Gain | ||||||||||
Beginning at December 31, 2006 | $ | 9,764 | $ | (2,910 | ) | $ | 6,854 | |||||
Change in first quarter of 2007 | 3,666 | ¾ | 3,666 | |||||||||
Ending at March 31, 2007 | $ | 13,430 | $ | (2,910 | ) | $ | 10,520 | |||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at December 31, 2005 | $ | 962 | $ | (6,125 | ) | $ | (5,163 | ) | ||||
Change in first quarter of 2006 | 453 | ¾ | 453 | |||||||||
Ending at March 31, 2006 | $ | 1,415 | $ | (6,125 | ) | $ | (4,710 | ) | ||||
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
Net earnings | $ | 62,259 | $ | 58,447 | ||||
Other comprehensive gain (loss) | 3,666 | 453 | ||||||
Comprehensive income | $ | 65,925 | $ | 58,900 | ||||
Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 254,882 | $ | 236,599 | ||||
Jefferies Execution | $ | 25,216 | $ | 24,966 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Maturity Date | ||||||||||||||||||||||||
2009 | 2011 | 2013 | ||||||||||||||||||||||
Notional / Maximum | and | and | and | |||||||||||||||||||||
Payout | 2007 | 2008 | 2010 | 2012 | Later | |||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||||
Standby letters of credit | $ | 264.3 | $ | 264.3 | — | — | — | — | ||||||||||||||||
Bank credit | $ | 60.2 | $ | 60.2 | — | — | — | — | ||||||||||||||||
Equity commitments | $ | 266.8 | — | — | — | $ | 1.7 | $ | 265.1 | |||||||||||||||
Derivative contracts | $ | 751.6 | $ | 751.6 | — | — | — | — |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
• | Net revenues and expenses directly associated with each reportable business segment are included in determining earnings before taxes. |
• | Net revenues and expenses not directly associated with specific reportable business segments are allocated based on the most relevant measures applicable, including each reportable business segment’s net revenues, headcount and other factors. |
• | Reportable business segment assets include an allocation of indirect corporate assets that have been fully allocated to our reportable business segments, generally based on each reportable business segment’s capital utilization. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Capital | Asset | |||||||||||
Markets | Management | Total | ||||||||||
Three months ended March 31, 2007 | ||||||||||||
Net revenues | $ | 404.2 | $ | 14.6 | $ | 418.8 | ||||||
Expenses | 307.2 | 8.1 | 315.3 | |||||||||
Earnings before income taxes, minority interest and cumulative effect of change in accounting principle | $ | 97.0 | $ | 6.5 | $ | 103.5 | ||||||
Segment assets | $ | 25,502.1 | $ | 193.4 | $ | 25,695.5 | ||||||
Three months ended March 31, 2006 | ||||||||||||
Net revenues | $ | 385.7 | $ | 29.7 | $ | 415.4 | ||||||
Expenses | 291.0 | 27.0 | 318.0 | |||||||||
Earnings before income taxes, minority interest and cumulative effect of change in accounting principle | $ | 94.7 | $ | 2.7 | $ | 97.4 | ||||||
Segment assets | $ | 15,881.7 | $ | 63.2 | $ | 15,944.9 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | ||||
March 31, 2007 | ||||
Balance, at December 31, 2006 | $ | 257,321 | ||
Add: Contingent consideration | 4,080 | |||
Balance, at March 31, 2007 | $ | 261,401 | ||
1st Quarter | ||||
2007 | $ | 0.125 | ||
2006 | $ | 0.075 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Weighted | ||||||||
Three Months Ended | Average Grant | |||||||
March 31, 2007 | Date Fair Value | |||||||
(Shares in 000s) | ||||||||
Restricted stock | ||||||||
Balance, beginning of year | 4,336 | $ | 19.12 | |||||
Grants | 3,592 | $ | 28.37 | |||||
Forfeited | (96 | ) | $ | 25.19 | ||||
Vested | (1,535 | ) | $ | 19.57 | ||||
Balance, end of period | 6,297 | $ | 24.44 | |||||
Weighted | ||||||||||||||||
Three Months Ended | Average Grant | |||||||||||||||
March 31, 2007 | Date Fair Value | |||||||||||||||
(Shares in 000s) | ||||||||||||||||
Future | No Future | Future | No Future | |||||||||||||
Service | Service | Service | Service | |||||||||||||
Required | Required | Required | Required | |||||||||||||
Restricted stock units | ||||||||||||||||
Balance, beginning of year | 14,813 | 13,905 | $ | 19.21 | $ | 7.26 | ||||||||||
Grants, includes dividends | 2,021 | — | $ | 25.41 | $ | — | ||||||||||
Deferral expiration | — | (1,037 | ) | $ | — | $ | 12.12 | |||||||||
Forfeited | (231 | ) | — | $ | 20.97 | $ | — | |||||||||
Vested | (2,603 | ) | 2,603 | $ | 17.91 | $ | 17.91 | |||||||||
Balance, end of period | 14,000 | 15,471 | $ | 20.47 | $ | 8.60 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Weighted-Average | ||||||||
Dollars and shares in thousands, except per share data | Options | Exercise Price | ||||||
Outstanding, December 31, 2006 | 1,688 | $ | 11.02 | |||||
Granted | ¾ | ¾ | ||||||
Exercised | (271 | ) | $ | 10.59 | ||||
Canceled | ¾ | ¾ | ||||||
Outstanding, March 31, 2007 | 1,417 | $ | 11.10 | |||||
Outstanding | ||||||||
Net of Expected | Options | |||||||
March 31, 2007 | Forfeitures | Exercisable | ||||||
Number of options | 1,417 | 1,417 | ||||||
Weighted-average exercise price | $ | 10.59 | $ | 10.59 | ||||
Aggregate intrinsic value | $ | 25,293 | $ | 25,293 | ||||
Weighted-average remaining contractual term, in years | 0.98 | 0.98 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | ||||||||
Mar. 31, 2007 | Mar. 31, 2006 | |||||||
Compensation and benefits, as reported | $ | 227,666 | 232,734 | |||||
Effect of expensing share based awards granted to retirement-eligible employees (1) | (3,785 | ) | (2,706 | ) | ||||
Pro forma compensation and benefits costs | 223,881 | 230,028 |
(1) | Compensation and benefits, as reported for 2006, includes the amortization of such pre-2006 awards. The 2006 pro forma impact represents the presumed benefit associated with amortizing pre-2006 awards over the service period prior to the grant date for retirement-eligible employees. |
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Condition and Results of Operations
• | the description of our business and risk factors contained in our annual report on Form 10-K for the fiscal year ended December 31, 2006 and filed with the SEC on March 1, 2007; | ||
• | the discussion of our analysis of financial condition and results of operations contained in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; | ||
• | the notes to the consolidated financial statements contained in this report; and | ||
• | cautionary statements we make in our public documents, reports and announcements. |
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Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2005 | 2004 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Total | Total | Total | ||||||||||||||||||||||
Amount | Revenues | Amount | Revenues | Amount | Revenues | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Equity | $ | 538,891 | 27 | % | $ | 438,080 | 29 | % | $ | 503,848 | 42 | % | ||||||||||||
Fixed income & commodities | 245,289 | 12 | 178,674 | 12 | 126,353 | 11 | ||||||||||||||||||
Total | 784,180 | 39 | 616,754 | 41 | 630,201 | 53 | ||||||||||||||||||
Investment banking | 540,596 | 28 | 495,014 | 33 | 352,804 | 29 | ||||||||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||||||||||
Asset management fees | 55,462 | 3 | 50,943 | 4 | 38,208 | 3 | ||||||||||||||||||
Investment income from managed funds | 54,088 | 3 | 31,109 | 2 | 42,976 | 4 | ||||||||||||||||||
Total | 109,550 | 6 | 82,052 | 6 | 81,184 | 7 | ||||||||||||||||||
Interest | 528,882 | 27 | 304,053 | 20 | 134,450 | 11 | ||||||||||||||||||
Total revenues | $ | 1,963,208 | 100 | % | $ | 1,497,873 | 100 | % | $ | 1,198,639 | 100 | % | ||||||||||||
Three Months Ended | ||||||||||||||||
March 31, 2007 | March 31, 2006 | |||||||||||||||
% of | % of | |||||||||||||||
Total | Total | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Equity | $ | 173,057 | 28 | % | $ | 173,109 | 33 | % | ||||||||
Fixed income & commodities | 56,465 | 9 | 68,652 | 13 | ||||||||||||
Total | 229,522 | 37 | 241,761 | 46 | ||||||||||||
Investment banking | 170,115 | 27 | 127,734 | 24 | ||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||
Asset management fees | 9,451 | 2 | 26,009 | 5 | ||||||||||||
Investment income from managed funds | 13,034 | 2 | 14,813 | 3 | ||||||||||||
Total | 22,485 | 4 | 40,822 | 8 | ||||||||||||
Interest | 201,162 | 32 | 113,760 | 22 | ||||||||||||
Total revenues | $ | 623,284 | 100 | % | $ | 524,077 | 100 | % | ||||||||
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Quarter Ended | ||||||||||||
March 31, | March 31, | Percentage | ||||||||||
2007 | 2006 | Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 90,300 | $ | 46,918 | 92 | % | ||||||
Advisory | 79,815 | 80,816 | (1% | ) | ||||||||
Total | $ | 170,115 | $ | 127,734 | 33 | % | ||||||
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Three | Three | |||||||||||
Month | Month | |||||||||||
Period | Period | |||||||||||
Ending | Ending | |||||||||||
Mar. 31, | Mar. 31, | |||||||||||
In millions | 2007 | 2006 | Percent Change | |||||||||
Balance, beginning of period (1) | $ | 5,282 | $ | 4,260 | 24 | % | ||||||
Net cash flow in (out) | 439 | (195 | ) | |||||||||
Net market appreciation | 111 | 183 | ||||||||||
550 | (12 | ) | ||||||||||
Balance, end of period | $ | 5,832 | $ | 4,248 | 37 | % | ||||||
(1) | Excludes certain 3rd party managed funds that are no longer considered assets under management. |
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March 31, 2007 | December 31, 2006 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 156,934 | $ | 107,488 | ||||
Money market investments | 59,643 | 405,553 | ||||||
Total cash and cash equivalents | 216,577 | 513,041 | ||||||
Cash and securities segregated (1) | 692,941 | 508,303 | ||||||
Mortgage-backed securities (2) | 4,512 | 43,151 | ||||||
Asset-backed securities (2) | 4,095 | 28,009 | ||||||
$ | 918,125 | $ | 1,092,504 | |||||
(1) | In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies, as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. | |
(2) | Items are included in Financial Instruments Owned (see note 4 of the Notes to Consolidated Financial Statements). Items are financial instruments utilized in our overall cash management activities and are readily convertible to cash in normal market conditions. |
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• | The repayment of our unsecured debt maturing within twelve months ($100 million outstanding at March 31, 2007); |
• | The payment of interest expense (including dividends on our mandatorily redeemable convertible preferred stock) on our long term debt; |
• | The anticipated funding of outstanding investment commitments; |
• | The anticipated fixed costs over the next 12 months; |
• | Potential stock repurchases; and |
• | Certain accrued expenses and other liabilities |
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March 31, 2007 | December 31, 2006 | |||||||
Stockholders’ equity | $ | 1,689,159 | $ | 1,581,087 | ||||
Less: Goodwill | (261,401 | ) | (257,321 | ) | ||||
Tangible stockholders’ equity | $ | 1,427,758 | $ | 1,323,766 | ||||
Stockholders’ equity | $ | 1,689,159 | $ | 1,581,087 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 152,304 | 130,700 | ||||||
Pro forma stockholders’ equity | $ | 1,841,463 | $ | 1,711,787 | ||||
Tangible stockholders’ equity | $ | 1,427,758 | $ | 1,323,766 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 152,304 | 130,700 | ||||||
Pro forma tangible stockholders’ equity | $ | 1,580,062 | $ | 1,454,466 | ||||
Shares outstanding | 124,238,242 | 119,546,914 | ||||||
Add: Shares not issued, to the extent of related expense amortization | 26,497,871 | 24,139,907 | ||||||
Less: Shares issued, to the extent related expense has not been amortized | (4,626,220 | ) | (1,813,423 | ) | ||||
Adjusted shares outstanding | 146,109,893 | 141,873,398 | ||||||
Book value per share (1) | $ | 13.60 | $ | 13.23 | ||||
Pro forma book value per share (2) | $ | 12.60 | $ | 12.07 | ||||
Tangible book value per share (3) | $ | 11.49 | $ | 11.07 | ||||
Pro forma tangible book value per share (4) | $ | 10.81 | $ | 10.25 | ||||
(1) | Book value per share equals stockholders’ equity divided by common shares outstanding. | |
(2) | Pro forma book value per share equals stockholders’ equity plus the projected deferred tax benefit on the amortized portion of restricted stock and RSUs divided by common shares outstanding adjusted for shares not yet issued to the extent of the related expense amortization and shares issued to the extent the related expense has not been amortized. | |
(3) | Tangible book value per share equals tangible stockholders’ equity divided by common shares outstanding. | |
(4) | Pro forma tangible book value per share equals tangible stockholders’ equity plus the projected deferred tax benefit on the amortized portion of restricted stock and RSUs divided by common shares outstanding adjusted for shares not yet issued to the extent of the related expense amortization and shares issued to the extent the related expense has not been amortized. |
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March 31, | December 31, | |||||||
2007 | 2006 | |||||||
Long-Term Debt | $ | 1,169,278 | $ | 1,168,562 | ||||
Mandatorily Redeemable Convertible Preferred Stock | 125,000 | 125,000 | ||||||
Total Stockholders’ Equity | 1,689,159 | 1,581,087 | ||||||
Total Capital | $ | 2,983,437 | $ | 2,874,649 | ||||
Rating | ||
Moody’s Investors Services | Baa1 | |
Standard and Poor’s | BBB+ | |
Fitch Ratings | BBB+ |
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Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 254,882 | $ | 236,599 | ||||
Jefferies Execution | $ | 25,216 | $ | 24,966 |
March 31, 2007 | December 31, 2006 | |||||||
Total assets | $ | 25,695,487 | $ | 17,825,457 | ||||
Adjusted assets (1) | 25,002,546 | 17,317,154 | ||||||
Net adjusted assets (2) | 10,049,382 | 7,605,260 | ||||||
Leverage ratio (3) | 15.2 | 11.3 | ||||||
Adjusted leverage ratio (4) | 14.8 | 11.0 | ||||||
Net adjusted leverage ratio (5) | 5.9 | 4.8 |
(1) | Adjusted assets are total assets less cash and securities segregated. | |
(2) | Net adjusted assets are adjusted assets, less securities borrowed. | |
(3) | Leverage ratio equals total assets divided by stockholders’ equity. | |
(4) | Adjusted leverage ratio equals adjusted assets divided by stockholders’ equity. | |
(5) | Net adjusted leverage ratio equals net adjusted assets divided by stockholders’ equity. |
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• | inventory position and exposure limits, on a gross and net basis; | ||
• | scenario analyses, stress tests and other analytical tools that measure the potential effects on our trading net revenues of various market events, including, but not limited to, a large widening of credit spreads, a substantial decline in equities markets and significant moves in selected emerging markets; and | ||
• | risk limits based on a summary measure of risk exposure referred to as Value-at-Risk (“VaR”). |
Daily VaR(1) | ||||||||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Value-at-Risk in trading portfolios | ||||||||||||||||||||||||
VaR | Average VaR 3 Months Ended | |||||||||||||||||||||||
Risk Categories | 3/31/07 | 12/31/06 | 9/30/06 | 3/31/07 | 12/31/06 | 9/30/06 | ||||||||||||||||||
Interest Rates | $ | 2.04 | $ | 1.39 | $ | 1.03 | $ | 1.36 | $ | 1.07 | $ | 0.89 | ||||||||||||
Equity Prices | $ | 9.11 | $ | 6.37 | $ | 4.76 | $ | 7.14 | $ | 5.44 | $ | 4.83 | ||||||||||||
Currency Rates | $ | 0.44 | $ | 0.34 | $ | 0.48 | $ | 0.34 | $ | 0.34 | $ | 0.41 | ||||||||||||
Commodity Prices | $ | 1.77 | $ | 0.80 | $ | 3.29 | $ | 0.92 | $ | 1.41 | $ | 1.83 | ||||||||||||
Diversification Effect2 | $ | -5.25 | $ | -3.36 | $ | -4.47 | $ | -2.78 | $ | -3.18 | $ | -2.89 | ||||||||||||
Firmwide | $ | 8.10 | $ | 5.54 | $ | 5.09 | $ | 6.99 | $ | 5.08 | $ | 5.07 | ||||||||||||
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(In Millions) | ||||||||||||||||||||||||
Value-at-Risk Highs and Lows for Three Months Ended | ||||||||||||||||||||||||
3/31/07 | 12/31/06 | 9/30/06 | ||||||||||||||||||||||
Risk Categories | high | low | high | low | high | low | ||||||||||||||||||
Interest | $ | 2.0 | $ | 0.9 | $ | 1.5 | $ | 0.4 | $ | 1.0 | $ | 0.7 | ||||||||||||
Equity | $ | 9.2 | $ | 5.8 | $ | 6.4 | $ | 4.2 | $ | 5.3 | $ | 4.2 | ||||||||||||
Currency | $ | 0.4 | $ | 0.2 | $ | 0.4 | $ | 0.2 | $ | 0.5 | $ | 0.2 | ||||||||||||
Commodity | $ | 1.9 | $ | 0.2 | $ | 3.2 | $ | 0.6 | $ | 3.2 | $ | 0.7 | ||||||||||||
Firmwide | $ | 9.0 | $ | 5.4 | $ | 5.8 | $ | 4.2 | $ | 6.3 | $ | 4.2 | ||||||||||||
(1) | VaR is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specific confidence level. For the VaR numbers reported above, a one-day time horizon and 95% confidence level were used. | |
(2) | Equals the difference between firmwide VaR and the sum of the VaRs by risk categories. This effect is due to the market categories not being perfectly correlated. |
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($ in millions)
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(c) Total Number of | ||||||||||||||||
(a)Total | (b) | Shares Purchased as | (d) Maximum Number of | |||||||||||||
Number of | Average | Part of Publicly | Shares that May Yet Be | |||||||||||||
Shares | Price Paid | Announced Plans or | Purchased Under the | |||||||||||||
Period | Purchased (1) | per Share | Programs | Plans or Programs (2) | ||||||||||||
January 1 — January 31, 2007 | 9,316 | 28.87 | — | 5,939,000 | ||||||||||||
February 1 — February 28, 2007 | 417,602 | 28.82 | — | 5,939,000 | ||||||||||||
March 1 — March 31, 2007 | 162,875 | 26.72 | — | 5,939,000 | ||||||||||||
Total | 589,793 | 28.24 | — |
(1) | We repurchased an aggregate of 589,793 shares other than as part of a publicly announced plan or program. We repurchased these securities in connection with our stock compensation plans which allow participants to use shares to pay the exercise price of options exercised and to use shares to satisfy tax liabilities arising from the exercise of options or the vesting of restricted stock. The number above does not include unvested shares forfeited back to us pursuant to the terms of our stock compensation plans. | |
(2) | On July 26, 2005, we issued a press release announcing the authorization by our Board of Directors to repurchase, from time to time, up to an aggregate of 3,000,000 shares of our common stock. After giving effect to the 2-for-1 stock split effected as a stock dividend on May 15, 2006, this authorization increased to 6,000,000 shares. |
Exhibits | ||
3.1 | Amended and Restated Certificate of Incorporation of Jefferies Group, Inc. is incorporated herein by reference to Exhibit 3 of the Registrant’s Form 8-K filed on May 26, 2004. | |
3.2 | Registrant’s Certificate of Designations of 3.25% Series A Cumulative Convertible Preferred Stock is incorporated herein by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on February 21, 2006. | |
3.3 | By-Laws of Jefferies Group, Inc are incorporated herein by reference to Exhibit 3.2 of Registrant’s Form 10-K filed on March 28, 2003. | |
10.1 | Summary of the 2007 and 2008 Executive Compensation for Messrs. Handler and Friedman is incorporated herein by reference to Exhibit 10 of the Registrant’s Form 8-K filed on August 25, 2006. | |
10.2* | Summary of the 2007 Executive Compensation for Messrs. Schenk and Feller and Ms. Syrjamaki. | |
10.3* | Master Agreement for the Formation of a Limited Liability Company, dated as of February 28, 2007 among Jefferies Group, Inc., Jefferies & Company, Inc. and Leucadia National Corporation. | |
31.1* | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. | |
32* | Rule 13a-14(b)/15d-14(b) and Section 1350 of Title 18 U.S.C. Certification by the Chief Executive Officer and Chief Financial Officer. |
* | Filed herewith. |
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JEFFERIES GROUP, INC. | ||||||
(Registrant) | ||||||
Date: | May 9, 2007 | By: | /s/ Joseph A. Schenk | |||
Joseph A. Schenk | ||||||
Chief Financial Officer |